Fannie Mae Profits Miss Expectations

Published 7:00 pm, Tuesday, January 14, 2003

Mortgage buyer Fannie Mae said Wednesday that its fourth-quarter net profit was off by more than half, hurt by low interest rates that cut into the value of its derivatives.

Fannie Mae reported earnings of $952 million, or 94 cents a share _ below analyst expectations of $1.64 a share and much lower than its 2001 profit of $1.97 billion, or $1.92 a share, in the fourth quarter.

Fannie Mae posted a loss of $1.88 billion on purchased options, compared with a gain of $578 million in the year earlier. It uses the derivatives to hedge against certain risks associated with holding loans. An accounting change, which took effect in 2001, requires companies to record changes in the market value of all derivatives even if they aren't sold.

For the year, Fannie Mae earned $4.62 billion, or $4.53 per share, compared with $5.89 billion, or $5.72 per share, in 2001.

Analysts, however, were expecting 2002 earnings of $6.29 a share, according to Thomson First Call.

Net interest income jumped 31 percent and guaranty-fee income rose 23 percent, but those gains were more than offset by a $4.51 billion increase in losses on derivatives.

Washington-based Fannie Mae is a public company mandated by the federal government. It provides liquidity in the mortgage market by buying mortgages from lenders and packaging them for resale, transferring risk from lenders and allowing them to offer mortgages to people who would not otherwise be considered.

Fannie Mae shares traded midday Wednesday at $68.64, down $1.41, or 2 percent, on the New York Stock Exchange.